Avoid Inheritance Tax

Avoid Inheritance Tax


An increasingly large number of British domiciled individuals are positioned to become liable for inheritance tax on their estates upon death. This is largely because of an increase in personal wealth fuelled in part by higher valuation of principal properties. In Britain alone 41% of households have an estate that will be liable to the 40% inheritance tax, and this figure doesn’t take into account all of the British non-residents living abroad who are still domiciled in the UK and whose estates are still within reach of the Great British tax man.

So the question ‘how to (legally) avoid inheritance tax’ has to be asked. Well there are a number of approaches that individuals are already taking and in this article we detail and examine whether they are appropriate for you.

One of the main ways Britons are counteracting their impending inheritance tax bill is through the use of gifting allowances. According to a YouGov study around one hundred and three billion pounds will be given away by individuals facing an inheritance tax liability to their friends and family.

You can consider annually gifting money to children to help them get on the property ladder or giving a lifetime gift of cash to other family members with debts for example. By giving money away while you’re still alive you get to see how it can benefit others and you can also legally avoid having the tax man get his sticky IHT fingers on it.

Around 1.2 million Britons are considering using this method to mitigate their liability with the vast majority gifting money to allow family members to buy their first home…but if you don’t think any of your friends and family are deserving enough of a financial gift or you’ve already gifted the full amount that you’re allowed to then there are other alternatives available!

One of the best alternatives but least understood options is the use of a trust – not necessarily an offshore trust but a discretionary will trust. Since the government changed the way they tax trusts many people have become wary of even asking their financial adviser about whether such a vehicle can be used to legally avoid inheritance tax – but often they can.

Of course one of the most important things that you can do to get your affairs in order when considering inheritance tax is actually making a will, but assuming you’ve done than, gifted money and at least thought about setting up a trust what about changing joint ownership of your home to tenants in common?

All of the options discussed in this article can be legal ways to offset, reduce or negate inheritance tax liability – however, not all options will be suitable for you or necessarily applicable to you, so get your personal financial affairs in order with the aid of your own IFA.